What if Trump Implements a Border Tax Adjustment?Possible outcomes of a bad economic theory put into practice

15 March 2018

During his presidential campaign, Donald Trump called for a “Border Tax Adjustment“. Planned was a business tax reform, it would effectively be an import tax of 20 percent and simultaneously a 20% general export subsidy.

Effects of a Border Tax Adjustment

In theory, a Border Tax Adjustment should be trade neutral: a strengthened domestic currency would make exports more expensive internationally, lowering the demand for exported products while reducing the costs incurred by domestic firms in purchasing goods and services in foreign markets, thus helping importers. The strengthening of the US currency is expected by some to effectively neutralize the new tax, resulting in a trade-neutral outcome.

But the Republican Party by now has already rejected the plan – for good reasons, because in practice a “Border Tax Adjustment“ would lead to a massive welfare loss for US-citizens. A “Border Tax Adjustment“ would have very negative implications in Europe as well.

See the full story in the first video of our series GED insights that deals with US-protectionism and its results:

Our newest study presents the results of simulation calculations which quantify the possible long-term effects of a withdrawal from the North American Free Trade Agreement and a general economic isolation of the United States from the rest of the world. More ...